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Creating the Next

Multibillion-Dollar Online
Opportunities in Telecoms
With India on the threshold of an Internet explosion,
a joint Google-A.T. Kearney study pinpoints the
opportunities that hold the most value.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

All estimates contained in this report are for information purposes only and should not be
relied on for any other purpose. Any reliance third parties choose to make on these estimates
is an independent decision made exclusively by such parties entirely at their own risk. Neither
A.T. Kearney nor Google is under any duty to update or revise this report in any way.

Indias online revolution is on the edge of an exciting phase. At the turn of the century, the
country had only 5 million Internet users, largely on dial-up connections delivered through
fixed-line networks. In 2009, Internet use took off as mobile penetration grew and telcos began
to invest in data networks. By 2013, mobile Internet usage had overtaken fixed line, and mobile
devices had become the sole access device for many people. Today, 230 million Indians are
online, with 155 million of them using mobile devices.
This is just the tip of the iceberg (see figure 1). In the next three years, the country will see
another mobile explosion as the online community more than doubles to 480 million. By 2017,
385 million people will have smartphones, six times more than today, and the number of online
transactors will explode to 160 millioneight times as many as today.1 Data consumption will
triple, and consumers will be buying five times as much content. This transformation will
happen at an unprecedented pace. For Indian telcos, a world of value-creating opportunities
is about to emerge.

Figure 1
Mobile explosion in India between now and 2017
Expected volumes in 2017

480 million
Internet users

Evolution between 2015 and 2017

3x

data
consumption
per user
Cumulative revenue
potential of

385 million
smartphones

160 million
online transactors

5x

$8 billion

paid content
consumption
per user

Note: Visitor location register adjusted mobile subscribers


Sources: Pyramid Research 2013, Cellular Operators Association of India, Telecom Regulatory Authority of India; A.T. Kearney analysis

Google and A.T. Kearney conducted a joint study to pinpoint the best opportunities for Indian
telcos to pursue to capitalize on this explosion in the mobile Internet user base. The results
show the industry can generate additional cumulative revenues of $8 billion and EBITDA of
$2.9 billion over the next three years.2
This paper presents Google and A.T. Kearneys view on the mobile Internet market and the
expected structural changes, opportunities for telcos, and strategic and operational imperatives
for success. With unprecedented digital opportunities emerging over the next three years, now is
the time to act.
Online transactors are users who make payment transactions online, using Internet banking or cards.

EBITDA is earnings before interest, tax, depreciation, and amortization.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

Indian Telcos Poised to Leapfrog into Digital


The countrys telecom industry grew by 13 percent CAGR between fiscal year (FY) 2012 and FY14
and has reached total revenues of $25 billion, driven primarily by an increasing voice subscriber
base (see figure 2). Industry EBITDA has held steady at around 15 percent, although it varies
significantly between players. By FY17, the industry is expected to reach $35 billion in revenues.
Voice share is expected to decline as a result of subscriber saturation in urban areas and ongoing
pricing pressures. Non-voice, on the other hand, is expected to grow at 29 percent CAGR; within
non-voice, data revenue will grow at around 70 percent per year and new digital VAS streams are
expected to emerge and grow exponentially, whereas SMS and traditional VAS revenues will
remain flat or decline.3

Telcos can push data consumption up by


as much as 250 MB per user per month.
While this is a substantial shift, it is not unique. Global markets have seen similar shifts as they
matured from voice to messaging and from data to digital. The shift from data to digital is
occurring as more digital content and services are introduced and adopted. Markets such as
Japan and Korea have taken up to 10 years to move from data to digital, but we believe it will
happen much faster in India. The country has already embraced the Internet, as seen by the
massive adoption of social networking and the recent e-commerce boom. Mobile phones are
emerging as the online access device of choice, and smartphones are expected to proliferate,
allowing for wider and deeper use of the Internet and applications (see figure 3 on page 3).
As a result of this extraordinary confluence of consumer behaviors, we believe India will
leapfrog into online and digital services over the next three to five yearsopening up an
extraordinary opportunity for telcos to become the primary gateway to the digital life.

Figure 2
Indias telecom industry is seeing unprecedented growth
Indian telecom industry revenue growth
($ billion)
+13%
20

25
5

20

Subscribers (million)

35

CAGR

10

29%

25

7%

FY12

FY14

FY17e

683

773

944

Non-voice

Voice

Notes: Visitor location register adjusted mobile subscribers. FY is fiscal year.


Sources: Pyramid Research 2013, Cellular Operators Association of India, Telecom Regulatory Authority of India; A.T. Kearney analysis

VAS is value-added services. SMS is short message service.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

Figure 3
Mobile data use set to skyrocket in India

Consumer behaviors

Exploding Internet users

220
million

Booming online transactions

45%

480
million

in FY14

of railway
bookings done
on IRCTC website

by FY17

transactors by FY17

Services ecosystem

Device ecosystem

100 million

on Facebook in April 2014

on YouTube every month


as of September 2013

online commerce
by FY17

160 million online

Mobile
data use

55 million

>$30 billion

Smartphone prices to drop under $50

48 million

50%

of Google
and YouTube searches
on mobile

on WhatsApp in
April 2014

385 million

smartphones
by FY17

Notes: Online transactors refers to users who make payment transactions online using Internet banking or cards. FY is fiscal year.
IRCTC is the Indian Railway Catering and Tourism Corporation.
Sources: press research, Cisco Visual Networking Index (2013-2018), Indias Mobile Internet 2013 by Avendus, IDC 2013, MediaNama; A.T. Kearney analysis

Figure 4
Telcos have had mixed success with digital content and services
Contribution of digital content and services to total revenues
(%)
16%

Safaricom

10%

Docomo

M-PESAs contribution, growing 43% in 2011


Includes smart services: content, advertising

SK Telecom

5%

SK Planet: digital services strategic business unit

Telefnica

5%

Digital services contribution

KDDI
Tigo
SingTel

4%
3%
2%

Consumer value-added service contribution


Mobile financial services, online entertainment and information
Group Digital Life strategic business unit: advertising, content business

Note: 2012 data, contribution of revenue generated by all digital services and content
Sources: company presentations, Bloomberg; A.T.Kearney analysis

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

A Wealth of Opportunities
Digital opportunities typically fall into two categories: customer engagement (e-store and
e-care) and content and services.4 Many leading global telcos are succeeding in e-store and
e-care transformations but, so far, have had varying degrees of success with digital content and
services (see figure 4 on page 3). In fact, there are no straightforward, proven models. Several
challenges have caused this variability:
Migrating to new digital services (such as m-payments, e- and m-healthcare, and e- and
m-education) often requires massive changes in behavior and substantial investments in
consumer education.
Ecosystems are still nascent and often fragmented, demanding significant efforts in ecosystem
integration (as with m-payment integration across banks, payment providers, and telcos).
Consumer polarization around a few global online players limits plays for new entrants.
(Consider the preeminence of music and video hubs such as iTunes and YouTube.)
The onslaught continues from innovative over-the-top (OTT) players that are more focused
and agile than telcos.
Consumers have a limited willingness to pay for new digital services, especially when there
are free (albeit illicit) alternativesas in content.

The outlook for digital customer


engagement, which can unlock
massive opportunity in e-stores
and e-care, is extremely positive.
This has caused players to adjust their digital strategies, using three approaches:
Wait and watch. Observe and learn from others while focusing on driving data. For example,
Orange Money in Kenya launched mobile banking and money transfers almost three years
after Safaricom.
Focused plays. Pursue select opportunities that are relevant to key consumer groups. For
example, Verizon is focusing more on connectivity solutions for residences and enterprises,
including digital home, connected cars, and machine-to-machine (M2M) communication,
instead of competing with OTTs in online consumer businesses.
Broad-based plays. Diversify play across a number of services and geographies. For example,
SK Telekom is present in every area of digital life and has developed services for entertainment,
banking, m-commerce, payments, education, and many other lifestyle verticals.
Indias telcos can start off with a near-clean slate. A.T. Kearney and Google collaborated with
several Indian telcos to identify the core focus areas, using a structured approach to generate and
Content refers to information or publications that can be consumed digitally, such as music, movies, and books. Services refer to
offerings that enable customers to perform personal or business tasks and transactions digitally, such as cloud services and m-payments.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

prioritize ideas. We began by examining consumers lifestyle needs, telcos internal digitization
capabilities, and applications supporting digitization to compile a list of about 40 ideas. From
there, the ideas were condensed to the 12 with the most potential (see figure 5). The answers to
several questions helped to distill the most promising opportunities in terms of attractiveness,
ease of implementation, and EBITDA impact:
What is the extent of the consumer need?
Does it bridge an infrastructure gap?
Does it align with telcos core operations?
What is the existing and emerging competitive intensity?
Is there high potential for value?

Figure 5
Prioritizing digital opportunities for Indian telecoms
High

Internal digitization

Idea attractiveness

Media services

Low

Mobile apps
for SMEs

M-education

Online activation
M-payments

M-health
Wealth management
Devices e-tailing

Low

Online
recharge

Online customer
service

Content and services


23 year
opportunities
35 year
opportunities
>5 year
opportunities

Home security

E-governance

Medium

High

Ease of implementation
Notes: Bubble size indicates the total EBITDA equivalent for each opportunity in fiscal year 2017. SME is small- and medium-size enterprise.
Source: A.T. Kearney analysis

A shortlist of four top-priority ideas emerged (see figure 6 on page 6). Focusing on these areas
could allow telcos to capture $8 billion to $10 billion of cumulative value between FY15 and FY17.
E-store and e-care. Online recharges for prepaid mobile phones, online customer services,
and online acquisitions offer a massive opportunity to cut costs and create revenue from
cross-selling and upselling.
Media content and services. This opportunity to lead the nascent Indian market could create
more than $6 billion in additional data and content revenues.
Mobile business apps for SMEs. In this untapped market, telcos are in a prime position to
drive widespread adoption and capture $1 billion in revenue.
M-payments. Though a smaller opportunity, m-payments enable e-store, paid content, and
apps transactions.
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

Figure 6
Four areas hold vast potential for telcos

Area
E-store
and
e-care

Cost
saving

Description
Rapidly move recharges, acquisition,
and customer service online

0.8

Total
Revenue EBITDA
0.4

1.0

Online business
in FY17
$7.4 billion in recharges per year
15% of customer service calls

Give critical priority with immediate


benefits

15% of acquisitions

Media
content
and
services

Assess risk appetite, and emerge


as major content player (music and
video)

Mobile
apps for
SMEs

Drive widespread adoption of apps,


data, and devices in the untapped
SME market

1.2

0.3

$0.7 billion per year in untapped


market opportunity

M-payments

Enable e-store and m-commerce


transactions through wallet and
carrier billing

0.2

0.05

$0.6 billion of recharges for


online users

0.8

8.0

2.9

Boost data usage

6.2

1.5

3x data consumption per user


$1.6 billion per year in paid content

Fuel online transacting behavior


Total

Notes: Value over fiscal year (FY) 2015 to FY17 has been calculated taking into account the rising number of Internet users and greater adoption of digital
services (FY15: about 30 percent of potential value, FY16: 50 to 60 percent of potential value, FY17: 100 percent of potential value). Total EBITDA impact is the
sum of direct cost savings plus EBITDA arising out of incremental revenue (calculated using telecom industry EBITDA margin of about 25 percent). SME is
small- and medium-size enterprise.
Source: A.T. Kearney analysis

To put it into perspective, these four opportunities alone could drive 30 percent of incremental
revenue growth over the next three years, leading to 10 percent higher industry revenues and
$1.5 billion in additional EBITDA by FY17.
Three dark horses also have potential: m-education, m-health, and gaming. Although this report
does not cover these topics, we believe they could emerge as significant opportunities in the
medium term.

E-Store and E-Care: Disruptive Improvements


to Engage Consumers
In the highly competitive Indian telecom industry, mounting cost pressure, changing consumer
habits, and greater expectations about quality are strong incentives to engage digital customers
and take hold of the massive opportunity of e-stores and e-care. The outlook for digital customer
engagement is extremely positive for several reasons:
The number of Internet and smartphone users is about to explode.
Alpha users already exist, as seen in banking and travel. For example, 45 percent of railway
bookings are done through the Indian Railway Catering and Tourism Corporations website,
and 57 percent of all travel reservations in India are made online.
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

Telcos are investing in enhancing online user experiences and offerings. Some have even
introduced partially digitized acquisition processes within the existing regulatory framework
(with lead generation and order placement online).
Considering the current digitization levels compared to global benchmarks, Indian telcos have
a tremendous opportunity to drive an aggressive but realistic step change in penetration levels.
The online channels lower delivery costs as opposed to traditional dealer commissions and
calls to service centers can yield cumulative cost savings of between $720 million and $860
million over the next three years. In addition, e-store and e-care provide opportunities for
cross-selling and upselling that could add cumulative revenues of $400 million (see figure 7).

Figure 7
Telcos could drive a digital step change in India
E-store and e-care potential in FY17
Digitization
opportunity

Current online
penetration

Online
recharges

24%

Online
customer
services

Online
acquisitions

Global
average

Global
best-in-class

Target
for FY17

Total potential
FY1517

20% of total
subscribers
(180 million)

$320 million cost savings

70%

1315% of total
customer services

$160 million
cost savings

45%

1520% of total
acquisitions

$240380 million
cost savings

2025% of
total subscribers

70%

24% of total
customer service
tickets

30% of total
customer services

Less than 1%

1012% of total
acquisitions

$410 million incremental


revenue

Notes: Best-in-class benchmarks exclude players that have a completely online model, such as Giffgaff in the United Kingdom. FY is fiscal year.
Sources: discussions with industry players; A.T. Kearney analysis

The adoption of e-store and e-care is likely to come in stages, with online recharges and
customer service being the first step. Acquisitions will follow as customers become more
comfortable with online transactions.
Online recharges
Online recharges in India are lowonly 2 to 4 percent of all rechargesprimarily because of
user experience issues and the low prevalence of online transactors for telecom services. This
contrasts sharply with the global level of 20 to 25 percent and with best practices of 70 percent
in advanced prepaid markets such as Portugal.
Our survey of 3,452 mobile Internet users in 14 Indian cities examined awareness and adoption
levels of digital services, including online recharges.5 The insights reinforce the promise of
AC Nielsen conducted a market research survey with 3,452 Internet users across 14 cities in April and May of 2014. The survey compared
people across age groups, location types, Internet and mobile device ownership, and usage behaviors. The survey was conducted in
five metros, four tier 1 cities, and five tier 2 cities. Metros included Delhi, Mumbai, Chennai, Bangalore, and Kolkata. Tier 1 cities
included Ahmedabad, Chandigarh, Kochi, and Mysore. Tier 2 cities included Patna, Indore, Bhubaneshwar, Jalandhar, and Bhavnagar.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

digital. Awareness is not the problem: 64 percent of respondents were aware of online recharge
avenues, but only 18 percent had ever tried them. The gap can be attributed to a traditional
discomfort with online transactions. Further, a significant share of people who had tried online
recharges had significant problems, such as network access or speed issues and an inability to
understand the online process.
Most importantly, 70 percent of Internet users who have not yet undertaken online recharges are
willing to try because of problems with traditional channels. The distance to stores (50 percent)
and limited operating hours (43 percent) are the main pain points, along with unavailability of the
desired recharge denomination (36 percent).
Naturally, to drive up online recharges, the pool of online transactors needs to grow significantly
from the current 10 percent. Our research indicates that more than 160 million consumers will be
equipped with both debit cards and Internet banking and comfortable with online transactions
by FY17. This compares with other emerging economies such as Brazil and China, assuming a lag
of four to five years. Notably, it also implies that nearly all of the targeted 20 percent future
rechargers will be covered (see figure 8).

Figure 8
The popularity of online recharges for prepaid mobile phones is expected to rise
Online transactors
(million)
180 million
(FY17 target of 20% online recharges)
>230
160
1525 million
(current online rechargers)

20

Smartphone users
(million)

FY14

FY17

67

385

FY18
80 percent of Internet
users on smartphones

Note: FY is fiscal year.


Sources: Internet Mobile Association of India, press research, A.T.Kearneys 2013 Global Retail E-Commerce Index

Encouraging online recharges will hinge on enhancing users experience, awareness, and
comfort levels. Achieving a level of 20 percent online recharges by FY17 will lead to $320 million
in cumulative cost savings and $400 million in incremental revenues between FY15 and FY17 by
stimulating upselling and cross-selling to e-store users.
Online customer service
Companies around the world are shifting from traditional, offline modes of customer service
to e-care. Leading telcos such as Telstra have demonstrated how it should be donewith
intuitive functionalities and interactive customer service with 24/7 live chat and crowd
support for problems.
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

In India, online customer service is again plagued by user experience and adoption issues.
Sixty-one percent of customers are aware of online customer service, but only 21 percent have
tried it. (Interestingly, 32 percent of those users have tried online customer service for banking.)
Nearly 60 percent say that responses are not understandable, more than half say the turnaround
time is too long, and a third cite network access issues.6
Because digital customers will soon demand high-quality online customer service, it is time to
up the ante. The financial benefits are clear. Many requests and complaints are related to
prepaid balances, payments, and other service calls (see figure 9). Thirty percent of these15
percent of overall requests and complaintscan be resolved online. Naturally, the profile of
online tickets is also expected to include a greater share of service inquiries and requests for
assistance in technical problem solving. These are likely to be more effort-intensive and have to
be factored into managing the shift to online and calculating the resulting savings potential.

Figure 9
Many telecom customer service tasks can easily shift online
Categories of customer service tickets
(% of total tickets)
812%

Recharge offer inquiries

Difficult to deliver online

46%

General details

35%

2G, 3G data inquiries


Inquiry on value-added services

Moderately difficult to deliver online

58%

Caller tunes

35%

Balance-related complaint

710%

Payment query or complaint

710%
48%

Service calls
SIM-related
Others

Easy to deliver online

23%
4555%

Notes: Caller tunes includes activation and deactivation, song change, and inquiries about charges, monthly rent, profile, and song list. General details
includes calls from other telecom customers and inquiry calls about roaming, stores, call centers, websites, dealers, and distributors. Service calls are related
to do-not-disturb services, system errors, feedback on customer service, and responses to marketing texts or calls.
Source: A.T. Kearney analysis

Shifting 13 to 15 percent of customer services requests and complaints to the online channel
could save $150 million to $160 million.
Online acquisitions
Leading telcos are offering customers the possibility to sign up online for new connections.
For example, in the United Kingdom, Giffgaff has an online-only approach, where customers
can order a SIM card and activate it themselves with just five simple steps.
Based on a Nielsen market survey of 3,452 mobile users (across five metros, four tier 1 cities, and five tier 2 cities) who have had active
Internet connections in the past six months

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms

In India, however, regulatory requirements are hampering digital acquisition as employees must
verify physical signatures and proof documents. Several Indian telcos have developed partially
digitized processes to place orders and pay online. However, SIM delivery and the documentation process occur at the customer premises. This allows telcos to reduce the variable costs
of subscriber acquisition by almost half, but very few acquisitions are carried out this way.7
Players that push this model could target 15 percent of acquisitions online and capture
cumulative cost savings of $240 million over FY15 to FY17. If regulations ease to allow a fully
digitized process, variable costs could be reduced by an additional 30 percent to capture
further cumulative savings of $140 million over FY15 to FY17.8 The large-scale rollout of Indias
unique identity card, Aadhaar, could be the game changer here.
Success factors
A winning model for e-stores and e-care will entail building a superior user experience,
creating awareness for various online avenues, and building a compelling value proposition,
including incentives for customers to go online. Players will also need to manage the transition
of traditional retail channels, which might perceive the new model as eating into their income
stream (see figure 10).
To accelerate their digital journeys, Indian telcos will also need to reinforce and elevate their
digital approaches and move to a truly digital-first organization.

Figure 10
Success factors for e-store and e-care in India

Build a superior
user experience
Educate customers
about multiple
avenues of recharges
and services
Build awareness about
ease, convenience,
and incentives
Educate and promote
online modes of
payments, including
m-payment, to
address security
concerns

Ensure quick and convenient recharge


option (low number of screens)
Have a well-designed portal to facilitate the process
Use customer analytics to upsell and cross-sell

Create
awareness
of online
avenues

Winning
themes in
digitization

Offer incentives vis--vis traditional


channels to create pull
Have categories of incentives: cash back,
direct discounts, free value-add services
or data usage, bundled incentives

Manage
channel
transition

Reassess channel
commission
structures based
on revised store
economics
Institutionalize
online KPIs for
internal sales and
customer service
teams, in addition
to overall KPIs

Build a compelling
value proposition

Note: KPI is key performance indicator.


Source: A.T. Kearney analysis

Telcos can avoid channel commissions but will incur incremental fees for agents to deliver SIMs to customer premises, file and verify
customer application forms, and transfer documents back to the telcos offices.

Through a fully digitized process, telcos can further avoid delivery agents fees for completing applications and verifying documentation.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 10

Media Content and Services: Triggering the


Next Wave of Consumption
Entertainment is the most important media category in India, with videos and music representing
the largest subcategories (see figure 11). The Indian market is also highly vernacular, with 93
percent of time spent on videos consumed in Hindi or other regional languages.

Figure 11
Entertainment is Indias most popular online search category
Online searches in India
(% of total, 2013)
Total

Content consumption
(Time spent, 2013)
Entertainment

12%

6%

1%

8%

English vs. vernacular

2%
4%

7%
30%

8%
31%

32%
61%

10%
11%

63%

English

14%
Entertainment

News and info

Consumer electronics

Finance

Education

Health

Social networking

Others

Video

Games

Hindi

Music

Other

Other regional languages

Live TV

Notes: Based on the number of Google search queries by category across computers, mobile devices with full browsers, and tablets with full browsers.
Others includes jobs, vehicles, real estate, and gifts. Language of content based on video consumption across the Top 100 YouTube channels.
Sources: Google; A.T.Kearney analysis

Indias data and paid content consumption is much lower than global markets. Per capita data
consumption is only one-sixth of U.S. levels, and paid content consumption per user is a tenth
of U.S. levels (see figure 12 on page 12).9 Consumption is held back by several factors:
Low digitized content availability, especially in entertainment categories such as
music and video
Low content accessibility because of the lack of an easy-to-use, vernacular gateway
Poor user experience as a result of network issues
Traditional low willingness to pay because of budget consciousness and availability
of free content
Paid content revenue refers to total revenue (telco share + content owner share) monetized only through direct payments by consumers,
excluding advertising and caller ringback tones. Content revenue per user for the United States and Western Europe has been adjusted
from actual values by 75 and 80 percent respectively to account for differences in nominal pricing levels.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 11

Figure 12
Indians do not use much data or buy much content
Per capita data consumption by
Internet users in 2014
(MB per month)
~220MB
2025%

~1,400 MB
510%
10%

510%

10%
510%

1520%

Content revenue per user


($ per user per year)
8.0
Others
Email
Music

510%
6070%

Videos

3540%

India

5.3

Social networking

0.8

United States

India

Western
Europe

United
States

Notes: Data consumption pattern for India based on behavior among smartphone users; U.S. pattern based on all Internet users. Includes total revenue
(telco share plus content owner share) monetized only through direct payments by consumers. Excludes advertising and color ringback tones. Content
revenue per user for the United States and Western Europe have been reduced from actual levels by 75 and 80 percent respectively to account for
differences in pricing levels.
Sources: Cisco, Skyfire, eMarketer, Nielsen; A.T. Kearney analysis

The confluence of drivers (as discussed earlier) and the increasing 3G adoption will cause
current data and paid content consumption to double organically by FY17 to 470 MB data per
user per month and $1.6 in content revenue per year. Nevertheless, this will still be significantly
lower than in other developed markets.
Telcos have the opportunity to significantly expand the pie by catering to unserved demand,
especially in online music and video. According to our survey, 73 percent of mobile data
consumers would be willing to spend more time online if more entertainment content were
available in an engaging format.
Importantly, the monetization tide is changing both globally and in India. The global paid
content market, plagued by copyright infringements over the past decade, is showing signs of
recovery, and consumers are more willing to pay for quality content. Rights owners are taking
notice, too, and are throwing more weight behind digital delivery:
Spotify, a recommendations-based music streaming service, grew its paid subscribers from 2.5
million in September 2010 to 6 million in December 2013, or 25 percent of its overall user base.
Netflix invested $100 million to produce two seasons of House of Cards, a political drama
series exclusively released on Netflix.
Beyonces latest album had a one-week exclusive release on iTunes before its record release,
smashing all previous download records.
Even in India, 30 percent of consumers are willing to pay for quality and customized content,
according to our survey. Furthermore, there are supply-side opportunities:
The ownership base is fragmented, with more than 750 TV channels and 140 movie
production houses but no clear winners.
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 12

There is a distribution shortage. Half of all Bollywood movies are not screened because of a
shortage of theater screens.
Telcos are uniquely positioned to address these adoption challenges and expand the overall pie
because they have wide consumer reach and deep insights into consumer behaviors.
Depending on their risk appetite, telcos can capture a large share of the content market.
However, they must act now or run the risk of getting crowded out by other players, especially
emerging OTTs. The question is how. Overall, there are three business models to choose from,
each with varying levels of bigness (see figure 13).

Figure 13
Telecom business models
Telco role
Suggest
Recommendations
engine

Engage
Customer engagement
platform

Description and implications


Rely on an OTT player to develop a content hub
Cutting-edge customer analytics promote
all traffic to one hub

Build open API platform with app developers with


fantastic user experience
Effective and flexible alliances with providers
and carrier billing

Fairly complex, requires innovative capabilities and


deep consumer insights

Content hub

Last.fm capabilities in YouTube


channel recommendations,
promote data packs through SMS

Might not be sufficient to create step change in usage

Drive significant usage, allow telco to experiment,


understand market, and stay relevant to consumers

Aggregate

Examples

Develop a library of high-quality, paid content


Most significant value potential
High risk of failure, need to go for the win (typically
no more than two players can succeed)

Singtels inSing and deFIND


are gateways for everything
about life in Singapore
SK Telekoms SK Planet is an
all-encompassing lifestyle
and entertainment hub and an
app store

SK Telekoms Melon is the


market leader for music content in
Korea, offering music downloads
and streaming

Might need to consider industry collaborations

Notes: OTT is over-the-top. API is application program interface. SMS is short message service.
Source: A.T. Kearney analysis

Given the awareness and vernacular access challenges, the best base approach is consumer
engagement platforms (CEP). This will require developing a vast, dynamic set of offerings within
a complex ecosystem of alliances. SingTels inSing and deFIND and SKTs SK Planet are
examples of leading CEPs.
An extensive content hub offers the most value potential but comes with significant investments and risks. To succeed, telcos can learn from leading content hub players such as iTunes.
Four moves will be essential:
Develop a distinctive, interactive user experience.
Build comprehensive libraries by partnering with the right content providers.
Create winning customer analytics capabilities to present curated content recommendations.
Use carrier billing as a strategic advantage.
Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 13

Depending on the role chosen, there is a clear opportunity for telcos to push data consumption
up further by 250 MB per user per month. Most of the latent demandmore than 80 percentis
in videos, which can lead to incremental cumulative revenues of up to $2.7 billion in FY17 and
$5.6 billion between FY15 and FY17. There is also room to increase content revenue per user by
$2.4 to $2.6 per year if telcos partner with content publishers to undertake a large-scale content
play. This can drive total paid content consumption in FY17 from $0.6 billion to $1.6 billion,
leading to an additional content revenue share for telcos of up to $280 million in FY17 and
a cumulative $600 million over FY15 to FY17.10 Overall, the total cumulative value creation
potential over FY15 to FY17 could reach $6.2 billion.

Business Apps for SMEs: Make a Compelling


Value Proposition
Globally, SMEs across verticals have adopted an array of mobile business applications (MBAs) to
drive operational efficiencies. In 2013, about 45 percent of the worlds SMEs were using MBAs
and it is expected to jump to 60 percent by 2016.
In India, the SME market is enormous, with 50 million companies in operation in 2013, of which
2 million have more than 10 employees. SME spending on information and communications
technology (ICT) has also been growing steadily over the past two years, at a CAGR of 15
percent to $7 billion in 2013. A large part of this comes from larger SMEs, which spend $3,500
per year on IT services, mostly on telephony and connectivity services. Little of this spending
goes toward mobile business apps. Adoption has been hampered by security concerns, the
cost of data-enabled devices, and a lack of employee Internet literacy, according to our
survey. However, SMEs are willing to use apps if there is a compelling value proposition.
Telcos have a unique opportunity to drive and monetize MBA adoption among SMEs, along with
data connectivity revenues, by capitalizing on their unique strengths:
Existing sales relationships with SMEs and SME employees, far deeper than any app providers
An established billing platform
Insights into SMEs business needs and relevant mobile apps
The ability to extend ICT service support to other services, including mobile device
management and security solutions
Success will hinge on identifying and developing the right mobility-oriented and cloud-based
smartphone apps to help SMEs improve their operational productivity. A focused sales effort
will also require pinpointing where apps can add the most value. Using a structured approach
to find the most promising apps and verticals, we identified five categories of apps for four
industries (see figure 14 on page 15).
Indian telcos should source or develop MBAs for these industries and focus their sales efforts on
providing the larger SMEs with compelling business cases. Showcasing select M2M applications
for example, in security or in vehicle or asset trackingcan be a powerful way to demonstrate the
value proposition of mobility and cloud-based apps.

Assuming telco content revenue share at 30 to 40 percent, in line with global trends

10

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 14

Figure 14
Business apps have great potential for four industries

Potential mobility and cloud applications

Focus
verticals

Workforce
management

Description

Banking,
financial services,
and insurance

Sales
improvement

Supply
chain
management

Customer
services

Data
collection

Asset management
Insurance agents

Courier delivery

Logistics

Transport providers

Pharma

Healthcare

Pathology
Clinics and hospitals

Snacks manufacturers

Consumer
goods

Handicrafts
manufacturers

Low potential

High potential

Sources: CRISIL Research, Zinnov Research, press research; A.T. Kearney analysis

Figure 15
Telcos have work to do to get SMEs to embrace apps

Drive device
connectivity

Increase use of
mobile business apps

Drivers

Challenges

Potential action

Convince SMEs
of sustainable
value proposition

SMEs hesitate to adopt without


tangible benefits

Integrate with
existing IT
systems

Standalone IT systems are used,


typically for accounting

Structure, educate,
and incentivize the
salesforce

The telco salesforce focuses on


traditional services (voice and
connectivity) because they are
easier to sell

Modify the incentive structure to focus


on mobile business apps

Devices are expensive


(more than $80)

Offer free or discounted data packs for


a limited time to push plan upgrades

Employees who are not Internet


savvy see little merit in data

Waive or postpone app charges if


employees upgrade devices or plans

Enable employees
to upgrade to data
devices and plans

SMEs are concerned about


after-sales support

Align with best-in-class providers


Demonstrate capable after-sales
support

Focus on apps that increase productivity


and not on replacing or adding to existing
systems and software
Train salesforce to promote apps

Engage channel partners

Finance devices (for example,


reimburse for prepaid)

Note: SME is small- and medium-size enterprise.


Source: A.T.Kearney analysis

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 15

If telcos can mobilize their sales force and drive adoption, they could gain incremental
cumulative revenues of $490 million to $1 billion by FY17, of which 50 to 55 percent would come
from mobile apps and 45 to 50 percent would come from higher data consumption (driven by
higher device and M2M connectivity).
Getting SMEs to adopt MBAs will require helping them throughout the selling and adoption
process, as outlined in figure 15 on page 15.

M-Payments: Enable Online Transactions to


Drive Usage Maturity
Mobile payments can serve a range of objectives, including supporting digital recharges,
person-to-person (P2P) transfers, utility payments, online payments through payment gateways
or carrier billing, and over-the-counter point-of-sale payments. Globally, m-payments have
grown at an impressive CAGR of 49 percent to reach $235 billion in 2013. However, most of
these transactions are toward top-ups (65 percent) and P2P transfers (34 percent). Telcos are
still investing in consumer education and ecosystem development to aid adoption.
In India, m-payments are still nascent and are hampered by several challenges:
Regulatory restrictions. There are limited cash-out facilities for m-wallets. Telcos must
partner with banks to offer cash out, and carrier billing offers restricted functionality.
Ecosystem infancy. The agent network for loading m-wallet accounts is limited. For example,
Safaricom Kenya has 80,000 M-Pesa agent outlets, but Airtel Money has only 15,000 outlets in
India. Few vendors accept m-payments, especially in travel and e-commerce.
User experience and concerns. USSD- and SMS-based services are cumbersome, with slow
response times and frequent session timeouts.11 Security is also an issue, with 59 percent of
our survey respondents saying it is a concern for online transactions.
However, as discussed earlier, m-wallets might be important for Indian telcos to provide an
interim means of undertaking e-store transactions while online transacting via debit cards and
Internet banking matures over the next two to three years. M-wallets will allow users with
security concerns to experiment with lower-value wallets.
M-payments can generate incremental revenue for telcos by acting as a payment instrument
for micro payments in e-commerce, utility bill payments, and purchasing apps. By offering
m-wallet and carrier billing as simpler alternatives to Internet banking and cards, telcos have
much to gain:
Twenty-five percent of utility bill payments of Internet-enabled households (potentially $2.5
billion transaction value in FY17 on m-wallet)
Five percent of e-commerce transactions ($1.3 billion transaction value in FY17 on m-wallet)
Ninety percent of paid apps purchases (more than $200 million transaction value in FY17 on
carrier billing)
Depending on the service, telcos can earn up to a 2 percent commission on m-wallet transactions
and possibly more than 10 percent revenue share on apps purchases.
USSD is unstructured supplementary service data.

11

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 16

Several moves can build a strong foundation for m-payments:


Invest in building the ecosystem. Improve the ease of use for products and offerings, and
establish a large network of cash-in and, when allowed, cash-out outlets.
Invest in consumer education. Build awareness, and drive adoption.
Build trust. Use brand strength and existing billing relationships to give consumers confidence
about telcos handling their money. Collaborate with banks and other payment gateways to
gain consumers trust.
If Indian telcos can deliver on these factors, they could earn cumulative revenues of $180 million
between FY15 and FY17.

Strategic Decisions: Determining the Future


Digital State
Forward-thinking players will develop their digital vision and determine their own position on
the risk-reward curve of digital plays. Based on the breadth of digital offerings and intended
aggressiveness (extent of diversification, scale of investments, extent of alliances), there are
four states to choose from (see figure 16).
After determining this vision, telcos need to make decisions in three areas to define their
digital road map:
Business model and approach. Determine which and how many opportunities to pursue,
with what risk appetite, and what the differentiating value proposition will be.
Capability building and alliance strategy. Develop in-house capabilities, or establish
alliances with multiple partners.

Figure 16
Four strategic visions for the telco digital venture

Aggressiveness

Innovators

Multi-players

Aggressive promotion of niche services


portfolio through innovative models and
strategic investments and alliances

Aggressive diversification and


investment decisions; partnership
with different stakeholders to drive
ecosystem integration

Cautious followers

Experimenters

Wait and watch, pursuing select digital


services adjacent to core offerings and
requiring short-term bets

Wide range of digital services but more


adjacent to core offerings with small
incremental investments

Extent of diversification
into new business
opportunities
Scale of investments
Partnerships with
ecosystem players

Portfolio of offerings
Breadth of digital services being offered
Source: A.T.Kearney analysis

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 17

Organization structure. Create one centralized digital business unit to drive all digital
initiatives, or use multiple smaller decentralized teams to pursue individual initiatives.

Conclusion
The Indian online market is about to explode, and telcos will be able to pursue an unprecedented
array of large digital plays. Telcos have the opportunity to create $8 billion to $10 billion in
cumulative value over the next three years, especially in four areas:
E-store and e-care. Significant push and facelift in offerings and user experience
Media content and services. Innovative platforms to drive data and paid content
MBA for SMEs. Four to five key service apps with a concerted effort to encourage consumers
to use data, devices, and apps
M-payments. Promotion of m-wallet, enablement of carrier billing
India is set to witness unparalleled Internet momentum, and telcos are uniquely positioned to
take full advantage of it. It is time to get going and be digital.

A.T. Kearney

Google

Nikolai Dobberstein, partner, Mumbai


nikolai.dobberstein@atkearney.com

Aditya Gaurav, industry head of


telecom, Gurgaon
adityagaurav@google.com

Ajay Gupta, principal, Mumbai


ajay.gupta@atkearney.com

Shalini Poddar, principal account


manager, Mumbai
shalinipoddar@google.com

Vignesh Shankar, consultant, Mumbai


vignesh.shankar@atkearney.com

Arpit Jaiswal, principal industry analyst,


Gurgaon
arpitj@google.com

The authors would like to thank Smita Singh, Manan Shah, Neeraj Gupta, and Rakesh Mahajan for their valuable
contributions to this paper.

Creating the Next Multibillion-Dollar Online Opportunities in Telecoms 18

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